A Quest for Monetary Policy Shocks in Japan by High Frequency Identification

Fumitaka Nakamura, Nao Sudo and Yu Sugisaki
Additional contact information
Fumitaka Nakamura: Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: fumitaka.nakamura@boj.or.jp)
Yu Sugisaki: Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: yuu.sugisaki@boj.or.jp)

No 21-E-02, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: The use of changes in short-term interest rates (STIRs) within a 30-minute window around monetary policy announcements has been increasingly adopted in empirical studies. However, variations of STIRs within such a narrow window may be too small under the effective lower bound (ELB). To address the issue, this paper constructs a measure of monetary policy shocks using STIR futures in Japan, where the policy interest rate has been close to the ELB for an exceptionally long period. We show that (i) variations within a 30-minute window are closely correlated with key financial variables while those outside the window are correlated less, suffering from noise, (ii) expansionary shocks with respect to unconventional measures have continued to lower the long-term yield, and (iii) the impulses of macroeconomic variables to the shocks agree with what conventional theory predicts overall.

Keywords: Monetary policy shocks; high frequency identification; effective lower bound (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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